Introduction
Starbucks Coffee Company is an American coffee maker headquartered out of Seattle, Washington. The company operates in 62 countries across the globe. Starbucks outlets serve hot and cold beverages, instant ground coffee, full leaf teas, snacks and whole bean coffees. Some of the Starbucks outlets even offer wine, beer and appetizers in the evening. Starbucks started its operation in 1971 and since then has grown to become a multinational. The net revenue for the company for the last year was 13.29 billion with a profit of 1.38 billion. The company plans to open its stores in more countries in the coming years. It also plans to increase its operation in USA and Canada. Listed in the Fortune 500 companies for a long time, Starbucks is known to be one of the most ethical companies in the world. Starbucks employees are known to be one of the most satisfied among similar segment of companies. Starbucks also has a partnership with Apple to promote and sell iTunes music through its outlets. This essay by taking a look at the financials, strategies and principles of the company will try to explore the key factors that are the driving force of success behind Starbucks.
Company Background and Growth
Starbucks Corporation is a leading coffee company in the world which has its base settled in Seattle, Washington. As of the report of 2nd January, 2013, Starbucks owns 20,871 stores all over the world. Operating in about 62 countries including USA, Canada, Japan, UK, China, Mexico, India, Taiwan and Australia, Starbucks is the largest coffeehouse company selling over 30 types of coffees, coffee and non-coffee blended beverages, hot and iced espresso beverages, smoothies, teas and fresh-brewed coffee (SCC# 1).
Starbucks first came into operation in 1971 on 30th March in Seattle, Washington. Jerry Baldwin, Zev Siegl and Gordon Bowker who all studied at the University of San Francisco influenced by Alfred Peet, an entrepreneur in coffee roasting, came up with the idea of selling gourmet coffee beans. Though Gordown Bowker originally suggested the name 'Pequod' which was a doomed whale ship in Herman Melville’s Moby Dick, due to the objections raised by the other cofounders finally the name 'Starbucks' based on Captain Arab's first mate Starbuck was decided upon (Madison 2011). Initially Starbucks began its business selling only roasted whole bean coffees. It was around 1986 that Starbucks began to sell espresso coffee. Starbucks was sold to Howard Schultz, who was a former employee of the company, in 1987 and in the same year the company began to expand its operation outside Seattle in Chicago, British Columbia and Vancouver. By the end of 1989, Starbucks had 46 stores operating in different parts of the country. Starbucks opened its first outlet outside North America in 1996 in Japan. Slowly it expanded its business in UK and other countries one after another. Starbucks has also diversified its product line from coffee and coffee based beverages to other items including sandwiches, pastries, coffee flavored ice-cream and many more. Today Starbucks is one of the valuable brands in the world having notched a place in Forbes list with its $43.2 billion worth market cap (Forbes 2013).
Financial Journey
Starbucks was a small company till 1992, only operated out of Seattle, Washington and a few other cities till that time period. After 1992, Starbucks started expanding its operation aggressively inside USA and then from 1996 onwards outside USA. During 1992 Starbucks earned revenue worth $73.5 million and had 140 outlets across USA. It was in 1996 when Starbucks decided to go global; the revenue of the company at that time was $465 million (SCC# 4). In 1998, Starbucks became the first billion dollar coffee chain. The number of store outlets reached 2,000 in 1999. By the turn of the century Starbucks was already a big company.
In 2012, Starbucks posted a profit of $13.3 billion which was 18% growth in revenue growth from the previous year. The rate of growth in sales for Starbucks was 7% than previous year. Starbucks currently has 160,000 employees working for it around the world. The operating income for the company was $1.9 billion in 2012, up from $1.6 billion in 2011. With some changes brought in its production process, Starbucks has improved the operating margin to 15% in 2012 from 14.8% in 2011. The earnings per diluted share for the company increased to $ 1.79, up from $1.62 in 2011. In 2012, the capital expenditure for the company was $1.7 billion which was used for further expansion of stores (SCC# 4).
Starbucks mainly divides its operation into three regions; 1) the North and South Americas, 2) EMEA region, 3) China and other Asian Countries. For Starbucks, 75% of its revenue comes from Americas, 9 % from EMEA, 5% from China and rest of Asia and the remaining 11% from its channel development business. In Americas, Starbucks owns almost 61% of all the stores and rest 39% are licensed stores. On the other hand, the percentage of company owned stores is much less in EMEA and China. In total Starbucks generates 79% revenue from company operated revenues (SCC# 4).
The food service business which was launched by the company sometime back currently accounts for 4% revenue for Starbucks. This business is not growing as per the expectation of the company. The current CEO of Starbucks has decided to discontinue the current food services operation in many stores due to higher inventory and higher cost of production. This business is not the core competency of the company.
Backed by strong historical performances over the years Starbucks has seen historically high stock prices in recent months. The current stock price of 81.00 is the highest in the history of the company. Due to poor performances in 2007 and 2008, company share prices plummeted to $8.9 per share (Yahoo Finance). From that position backed by good results year after year, the company stock prices have bounced back to record high levels. Starbucks pays regular dividend to its shareholders. In fact it distributes dividend four times a year after each quarterly result. Starbucks paid an average of $0.21 per share per quarter to its shareholders in 2013 (Yahoo Finance).
Mission and Vision of Starbucks
Starbucks has the mission "to inspire and nurture the human spirit – one person, one cup and one neighborhood at a time" (SCC# 1). Starbucks is recognized as a responsible company committed to its social responsibility. Reputed as one of the most ethical companies in the world, Starbucks tries to provide its customers with the best of experience by keeping the price of its products reasonable and giving an atmosphere ideal for peaceful conversation with friends and family. Starbucks also has a separate mission dedicated to the cause of environment which states "Starbucks is committed to a role of environmental leadership in all facets of our business" (Callejon 2012). Indeed, Starbucks makes efforts to carry out its environmental mission statement by trying to buy, sell and use products which are environment friendly, sharing productive information related to environment with its partners and encouraging environmental responsibility among the stakeholders and customers.
Starbucks has the vision of establishing itself as "the premier purveyor of the finest coffee in the world" while maintaining its uncompromising principles as it grows (Page 2010). Starbucks is guided by the following six principles:
- Provide an excellent work environment for all the employees to shine and grow treating each other respectfully.
- Regard diversity as quintessential element to business operation.
- Developing dedicated and satisfied customers.
- Maintenance of highest standards of quality while purchasing, roasting and delivering coffee.
- Positive contribution to environment and communities.
- Recognition of profitability as key to future success (Page 2010).
Compensation and Benefits Practices
Starbucks is admired as one of the most employee friendly companies in the world and ranks 73rd in the list of 100 Best Companies to Work For (CNN Money 2013). Irrespective of creed, color, sex, race and sexual orientation, Starbucks treats all its employees equally providing them with generous benefits. Since its inception in 1971, Starbucks follows the philosophy of "Leave no one behind" and with this philosophy in mind Starbucks tries to create a pleasant work environment for all the employees to enjoy working with the company and doing their best to serve and satisfy the customers. As per the report of Hewitt Associates Starbucks Partner View Survey, Starbucks employees have 82% job satisfaction rate (Hammers 2003).
Based on skills, experience and performance, Starbucks gives a competitive compensation to its employees. The total pay package in Starbucks is known as "Your Special Blend" which makes sure to take care of the needs and demands of every of the employees. Starbucks calls its employees partners and treating them with respect is one of the guiding principles the company adheres to. Both the full-time and part-time Starbucks employees working minimum 20 hours a week are entitled to full health insurance coverage including medical, vision, dental and alternative services. Starbucks employees are also offered 401k plan in which the contribution of employees are matched by the company from 25-150% of the first 4% of pay, based on the length of service. Employees are also allowed to share in the growth of the company through 'Bean Stock', which is a stock option plan, upto 14% of their gross pay (Hammers 2003). The company also allows employees to buy Starbucks shares at a discount price via payroll deductions. These benefits are also extendable to the spouses of the employees.
Starbucks provides life insurance coverage, disability plan coverage, accidental death and dismemberment allowance to its employees. The company also helps its employees overcome with emotional stress, personal problems and critical incidents both at the workplace and home with an Employee Assistance Program (EAP) which is open to both the employees and their eligible dependents. Starbucks also has a fund called CUP which offers financial assistance to employees going through financial crisis due to illness, natural disaster, death of a spouse or family member and other such emergencies (SCC# 2). Starbucks provides adoption assistance to its employees through reimbursement of up to $4,000 to help employees deal with expenses related to adoption.
Business Ethics and Social Responsibility
Starbucks has been recognized as one of the most ethical companies in the world adhering diligently to its guiding principles to conduct business in an ethical manner through positive contributions to the environment and community, diversity, wellness and maintenance of high quality standard in its delivery of service. Starbucks is a company committed to social responsibility and it fulfills its responsibility by staying true to its vision and mission statement and conducting its business in compliance with the six guiding principles as has been discussed above. Despite being the largest coffeehouse company in the globe, Starbucks makes sure not to waver from its principles and values. It is the only food and beverage company that provides its employees, both full-time and part time, with health benefits. The company makes continuous effort to make positive contribution to communities. It has dedicated about 230,000 hours for the purpose of community service in 2012. It also provides support to international relief programs and literacy efforts. In order to help the American population deal with the rising rate of unemployment, Starbucks has created 200 jobs by opening up a factory in Georgia (Callejon 2012). Starbucks also makes endeavors for improving the lives of its suppliers with a program called Starbucks Supplier Diversity Program designed to reach out to the suppliers who are either female or from minority section. Starbucks is known for its effort to make positive contribution to the environment. It uses recycled papers and plastics, has attained a 50% decrease in wastewater in thousands of its stores by installing an environment friendly filtration system. Starbucks also takes into account the well-being of its customers by making sure to provide gourmet low calorie products that are free from artificial flavors, high fructose corn syrup, artificial trans fats and dyes (Callejon 2012).
Starbucks dedicates itself to purchasing and serving gourmet quality coffee that is grown responsibly and traded ethically. The company keeps this commitment through its responsible purchasing practices of coffee, loan programs, farmer support centers and forest conservation endeavors (Starbucks Corporation 2013). Starbucks follows Coffee and Farmer Equity (C.A.F.E.) Practices in collaboration with Conservation International to ensure high quality coffee while promoting economic, social and environmental standards. Starbucks ethically sourced 93% of its coffee via CAFE practices in 2012 and determines to reach 100% sourcing of its coffee through this way by 2015.
Starbucks has farmer support centers that provide loans to farmers to help them overcome economic hardship. Starbucks makes sure that its vendors too respect its ethical responsibilities and in cases where vendors fall short of the quality standards expected by Starbucks, the company doesn't flinch from taking a stern action. For instance, Starbucks made an assessment of its 129 vendors in 2011 and found 38 vendors falling short of quality standards. Starbucks dismissed the service of 26 of its suppliers on the ground of quality issues (Callejon 2012).
Management Practices
Starbucks sells a product which can be copied by many other coffee makers across the world but still Starbucks excels in this business like no one else. Management practices of Starbucks differentiate it from other companies. Starbucks management tries to create a work environment that gives the employees a sense of ownership. This spirit of ownership encourages every employee to strive hard for the growth of the company. Starbucks gives utmost importance to satisfy customers with its gourmet quality coffee ensuring that they enjoy a heart-warming atmosphere while taking a sip of their drink (Wazza 2011). Starbucks also ensures that their partners serve the customers satisfactorily treating each customer courteously. Starbucks management not only promotes diversity in culture but also promotes five simple principles for success. Be welcoming, be considerate, be genuine, be involved and be knowledgeable are the five simple principles which Starbucks ensures for every employee to learn before joining and serving the company (Wazza, 2011)
Starbucks also promotes a culture of surprise and delight. Employees are encouraged to add to the delight of the customers. For Example, if a customer is waiting in the queue for a long time due to some technical problem of the coffee machine, the store employee can offer the order to the customer for free without consulting his manager. Furthermore, Starbucks management provides and announces surprise incentives for the employees from time to time (Wazza 2011). This way the whole community feels more responsible and motivated.
Starbucks management makes sure to collect feedback regularly not only from the customers but also from the employees. It uses customer feedback to improve delivery performance and uses the employee feedback to improve employee satisfaction and internal processes.
Finally, at Starbucks employees are treated in the best possible way. Starbucks management strongly believes that a satisfied pool of employees can create a successful organization. Without happy and satisfied employees it is impossible to create a happy customer base for the company and therefore, Starbucks tries hard to fulfill the needs and demands of its employees.
Company CEO, Howard Schultz indicated that Starbucks management wants to run the company as a small company where everyone knows everyone and everyone cares about everyone (Wazza 2011). In strongly negates a hierarchical governance structure and promotes a more flat governance principle.
Conclusion
Starbucks is one of the most successful food chains of our generation. Nobody ever thought that a coffee chain can become so big till Starbucks showed the path. Starbucks started its business in 1971 in Seattle, Washington and soon expanded across the country. Initially, it concentrated only on coffee beans and retail coffee selling business. Later it expanded to other business segments like bakery, breakfast items and coffee making and drinking accessories. Currently the company operates in more than 62 countries and has a market capitalization of $43 billion. It is one of the most ethical companies in the world. Irrespective of working with so many low wage workers, Starbucks unlike many other retail chains have rarely seen labor protests or unrest. Starbucks is a very environmental friendly company which continuously makes efforts to innovate its products and offering in a way that it is sustainable. Starbucks promotes diversity among its workforce and has created a culture of openness. Starbucks management encourages regular feedback from customers and employees and acts on the feedbacks which benefits both the customers and employees. Starbucks has seen some hard financial times during the recessionary period of 2007-2008 but it has managed to bounce back successfully. Starbucks continues to innovate and grow with simple but effective management principles and sustainable production practices. If it continues to function the way it is doing now then it will continue to be one of the world’s best company for ages to come.
Work Cited
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